Dodd's legislation would combine the regulatory powers of the Federal Reserve, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the Comptroller of the Currency into one agency. Some of those bodies might survive, albeit in very different roles. The Federal Reserve would continue to control monetary policy but its role as a regulator would be move to the new agency.

The Obama administration had rejected such calls. It has at times seemed at odds with itself, with Treasury Secretary Tim Geithner and Fed chair Ben Bernanke pushing for putting the Fed at the head of financial regulation, while FDIC chair Sheila Bair has fought to retain regulatory division and advocated a council of regulators to insure cooperation. A compromise of sorts seemed to have been reached lately, with the various administration players agreeing to a council of regulators in which the Fed would play the lead role.

Dodd seems to want to overturn that compromise in favor of a far more sweeping version of regulatory reform The defiance of the Obama administration's proposals is unexpected and may be an attempt by Dodd to salvage his reputation and electoral hopes. Some are comparing it to Max Baucus's introduction of compromise legislation on health care.

Oddly enough, Dodd might find some unexpected allies for his bill. Senator Richard Shelby, the Republican from Alabama, has reportedly told him that he will support far more sweeping legislation. And opponents of the Federal Reserve may cheer the fact that the bill strips the Fed of some of its powers.

Dodd told the New York Times that he thinks the financial crisis was caused in part by the ability of banks to choose which agency would regulate them. This is thought to foster "regulatory competition," as agencies adopt bank-friendly regulations to encourage more banks and other financial institutions to choose them. Obviously, that problem would be eliminated if there were only one bank agency.

Critics of the super-regulator idea point out that big banks might be able to easily control a single regulator, which could make the "too big to fail" problem more intense as banks scramble to merge and acquire rivals to increase their influence. What's more, mistakes by a single regulator wouldn't be subject to oversight or correction by rival regualtors. As in markets, competition may have its benefits in regulation.